Investment: Long road to Torotrak profit

TOROTRAK'S MAGIC gearbox is called "infinitely variable transmission", but its share performance is more like a "definitely monotonous fall". Since its demerger from BTG at the end of July, the price has more than halved. This was largely due to bad timing of the float and a pounds 50m rights issue, which came right in the middle of the market downturn. As for the underlying business, it remains largely inscrutable.

The company issued an upbeat progress report yesterday and the shares bucked the market trend to close unchanged at 107.5p. But investors are none the wiser about Torotrak's long-term future. True, the company reassured them that the development of its revolutionary automatic gearbox - which could reduce fuel emissions by more than 20 per cent - is on track.

The problem is that it is a long track. IVT will not be launched before 2003, with the first profit expected for 2004-5. In the meantime, Torotrak will have to convince car and truck makers that the system is reliable and durable.

Yesterday, the company said it was close to solving the main reliability problem, starting the car at low temperatures. But questions remain on whether IVT can last the 100,000 miles required by car manufacturers. The company also needs to work hard to increase the number of car-making partners, which help to develop the system and pay Torotrak royalties. At the moment the list includes Toyota, Ford and BMW, with another to be signed up shortly.

If all goes to plan, Torotrak will win 80 per cent of the automatic transmission market, raking in an estimated pounds 3bn in royalties by 2010. But if anything were to go wrong, or rivals such as Antonov were to get there first, Torotrak's potential would remain forever unfulfilled. The shares would be a very daring punt at the best of times, but in the current market turmoil they look a risk too far. Avoid.

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